Issue link: https://iconnect007.uberflip.com/i/1477844
SEPTEMBER 2022 I SMT007 MAGAZINE 13 elevated, so I think most people were hold- ing stock for things they wanted and needed to use. Again, we can use the automobile industry as an example. From the data, we see produc- tion levels improving, but there are very low inventory levels for new vehicles. Until we get those inventory levels closer to historically normal levels—and as we head toward a reces- sion—companies probably won't bring their inventories back to pre-pandemic levels for now. ey'll keep them at what they consider a healthy manageable level. But we're still very far from either of those two levels. We're cer- tainly very far from pre-pandemic levels. We're even very far from a more normal, manage- able, healthy type of range. Until you see inventories come up for fin- ished goods, you're likely to have spot short- ages, longer lead times, that type of thing. In many instances, OEMs have been reporting strong bookings, and order flow that's outpac- ing their deliveries; this suggests some backlog. With that type of environment, where OEMs are facing backlogs, you will have pressure on the supply chain. In 2021, there was much pressure on the supply chain with extremely high transportation costs, political uncertain- ties, and very strong demand. But these pres- sures have lessened, and demand is slowing. As well, transportation networks are getting better, and costs are coming down. Forces that had been working in one direction are now working in the opposite direction. Over time, this will bring down costs, improve availability, and shorten lead times. I see improvement in these areas. Let's look at the forces pushing up lead times. You had ships sitting off the coast, waiting to get to a berth so they could unload. ey sat there waiting for three extra weeks. at directly led to three weeks on your lead time when the stock you needed was sitting on a boat. Now, we don't have ships just continu- ally sitting outside the port. ey pretty much come in, get a berth, and unload. Johnson: It seems things are improving, but it's still a long tail to recovery. DuBravac: at's true. I've had conversations with companies that were sourcing from Rus- sia or other parts of the world. Once any of that stock is depleted, it will put pressure in that particular part of the market. So, those types of segments could have long tails. But other things could improve rapidly because some manufacturing shied to make other products. e classic COVID example is toilet paper. When you looked at production, roughly half the market was industrial grade, and the other half was commercial. When everyone started working from home, most of the demand shied to home consumption, and manufac- turers couldn't shi quickly enough to just producing consumer-grade toilet paper. Con- sumer toilet paper is a different product; it tends to have a lot more paper pulp than com- mercial grade. e demand for paper pulp shot up in the pandemic which drove the price up for paper pulp. ere are these knock-on effects that happen. What could happen in sev- eral areas is suddenly there will be available supply that wasn't there before, because man- ufacturers will go back to making the products like before the pandemic. at shi is still taking place. at piece is the long tail. It will take companies a while to shi back to the other markets they hadn't focused on in the past 18 months. Let's look at semiconductors, which shied away from categories like autos when the auto- Until you see inventories come up for finished goods, you're likely to have spot shortages, longer lead times, that type of thing.